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March 20 — Brand advocates for a marketing company who were misclassified as nonexempt employees may proceed with their Fair Labor Standards Act claims even though they cashed checks for back pay that were presented by the company as full payment of wages earned, the U.S. Court of Appeals for the Eighth Circuit ruled March 20.

Affirming summary judgment in part, the Eighth Circuit found that ActionLink LLC brand advocates were nonexempt employees as a matter of law and therefore entitled to overtime pay. However, the U.S. District Court for the Eastern District of Arkansas erred in holding that the employees waived their right to pursue additional damages under the FLSA by cashing proposed settlement checks, the court said.

A disclaimer on the check stubs that the sum constituted “full payment” of wages earned including minimum wage and overtime didn’t provide proper notice to the employees or serve as a release of their rights, the court held. “Any waiver that might be encompassed by the cited language could reach only wages themselves and not other statutory rights such as liquidated damages or attorney's fees,” Judge Michael J. Melloy wrote for the court.

The employees also argued that they weren't bound by the settlement because the FLSA requires settlements to be supervised by the Labor Department, and the assigned DOL investigator didn't authorize the waiver's language. However, because the court found the language on the checks insufficient as a matter of law, it declined to address what role the DOL must play in communicating or authorizing release language.

Judges Duane Benton and Bobby E. Shepherd joined the opinion.

Dispute About Misclassification and Overtime Payments

According to the court, the Labor Department began investigating a complaint in September 2011 that ActionLink, an Ohio company doing business in Arkansas, misclassified its brand advocates as exempt and failed to pay them overtime wages.

During the DOL investigation, ActionLink agreed to reclassify the employees and pay back wages, the court said. Thereafter, the company sent employees payments that included a disclaimer stating the checks represented full payment of “wages earned, including minimum wage and overtime, up to the date of the check.”

Two categories of employees, those who cashed the checks and those who didn’t, sued ActionLink and alleged that they didn’t receive all payments they had a right to receive under the FLSA.

Following a district court ruling that the brand advocates were not exempt from overtime, ActionLink entered a settlement agreement with the employees who didn't cash the checks.

But the company argued that the employees who did cash the checks weren't entitled to additional payments because they waived their FLSA claims. The district court agreed with ActionLink and dismissed the claims.

Settlement Validity Issue of First Impression

On appeal, the employees argued that they weren't bound by the settlement because, among other things, the checks didn't include sufficient language informing them of the consequences of cashing the checks.

The Eighth Circuit agreed. “Although the issue of what constitutes a valid settlement is an issue of first impression in our court, other circuits have held that the plain language of [the FLSA] requires an agreement by the employee to accept a certain amount of back wages and requires the employer to pay those wages,” it said.

The court pointed out that the Fifth, Seventh and Ninth Circuits have held that employees can't “agree to accept payment” unless they are given notice of the rights they are waiving.

In Dent v. Cox Communications Las Vegas, Inc., 502 F.3d 1141, 12 WH Cases2d 1537 (9th Cir. 2007), the Ninth Circuit found that ‘[s]imply tendering a check and having the employee cash that check does not constitute an ‘agreement' to waive claims; an agreement must exist independently of payment.”

Furthermore, by signing a claims waiver and receiving a valid check from the employer, an employee may waive the right to sue even if he doesn't cash the check, the court said.

But ActionLink’s disclaimer didn’t mention the FLSA, the waiver of claims, or any additional damages to which employees may be entitled, the court said.

“While we decline to specify the ‘magic words' necessary to constitute valid release language in these circumstances, we hold that ActionLink's purported release falls short of what is required under the FLSA,” the court held.

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